TaxTMI 
TaxTMI 
2017 (5) TMI 425
X X X X Extracts X X X X
X X X X Extracts X X X X
....lating to the Assessment Year under consideration without assigning proper reasons and justification. 8. The CIT(Appeals) erred in confirming the disallowance of _ 93,730/- being the expenses estimated for earning of the tax free income for maintaining the investment portfolio on the application of sec.14A of the Act r/w Rule 8D of the Income Tax Rules, 1962 in the computation of taxable total income without assigning proper reasons and justification. 12. The CIT(Appeals) erred in confirming the disallowance of _7,95,000/- being the expenses incurred for business promotion/advertisement in sponsoring cricket tournaments and a corporate box in the cricket stadium by recording cryptic findings in para 5.4.1 of the impugned order in the computation of taxable total income without assigning proper reasons and justification." 2.1 The Revenue has raised the following ground : "2.2. The Ld. CIT (A) failed to appreciate that the AO has adopted sale consideration of _ 42,16,24,000/- as value of 27% of share of constructed area as per clauses 12.1 and 12.4 of JV agreement which represents market value of property on date of transfer." 2.3 The Ld.CIT(A) has failed to apply the decisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e original return of income filed on 30.10.2007 and hence there was no failure on the part of the assessee to disclose fully and truly such facts for framing the assessment. 3.1 According to the AO, the assessee has not furnished any reply in response to letter dated 11.3.2015. The assessee has stated in its letter dated 16.3.2015 that the notice issued for reopening on 28.3.2014, did not contain the reason for reopening u/s.147 of the Act. The assessee has not asked for reasons for reopening. But at the time of personal appearance of the assessee's representative on 9.9.2014, the reasons for reopening the assessment is informed to him and requested to furnish the details called for vide notice u/s.142(1) dated 3.9.2014. In the above notice u/s.142(1), the assessee is requested to furnish the copy of purchase deed of land at Alathur and copy of power of attorney, if any executed in favour of M/s. Parsvnath Builders and therefore, it is clear that the reasons for scrutiny have been informed to the assessee. 4. Regarding reopening of assessment, ld.A.R submitted before us that there is no fresh material to re-open the assessment. Only on the basis of documents already on record was....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 'reason to believe' would mean cause or justification. In case the Assessing Officer has a cause or justification to know or suppose that income has escaped assessment, action u/s 148 can be taken. But obviously, there should be relevant material on which a reasonable man could have formed a requisite belief. Whether this material(s) would conclusively prove the escapement of income is not the concern at that particular stage. So what is required is the subjective satisfaction of the Assessing Officer based on objective material evidence. The reason was recorded as discussed above. The argument of the ld.AR is that where there was no fresh tangible material to reopen the assessment u/s 147, no action could be taken after the expiry of four years from the end of the relevant assessment year unless the assessee has disclosed fully and truly all material facts necessary for the assessment for that assessment year, inter alia. 5.2 As seen from the reasons recorded, it gives a clear picture that the Assessing Officer has got material evidence to form his opinion for taking recourse to section 147 r.w.s 148 of the Act. There cannot be two opinions. At the point of time when the reasons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....into consideration otherwise it may give unbridled power to an Assessing Officer to reopen any and every assessment order which would simply amount to a review. The concept 'change of opinion' is an in-built test to check the abuse of power by the Assessing Officer. So, now only when the Assessing Officer has a tangible material to base his conclusion that there is an escapement of income from assessment and the reasons recorded have a link with the formation of his belief, he has the power u/s 147 of the Act. 5.3 In the present case, the assessee has not shown capital gain arising out of joint venture agreement dated 10.09.2006 with M/s.Parsvanath Developers Ltd., though the assessee has received an amount of Rs. 7,02,54,000/. As per Explanation 2 of Section147, it is very clear that due to nondisclosure of capital gain by the assessee, the income chargeable to tax had escaped assessment. The assessee has not produced anything before the Commissioner of Income Tax (Appeals) to show as to how there is no transfer of impugned property in assessment year and how the provisions of section 2(47)(v) is not applicable. Hence, the action of Commissioner of Income Tax (Appeals) and that o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reasons for reopening of assessment to the assessee, then only the assessee is having grievance. On the other hand, in the present case there is no written request made by the assessee after filing the return of income for reasons recorded for reopening and then also after participating the re-assessment proceedings, now the assessee cannot raise that ground. Accordingly, this ground of appeal of the assessee is rejected. 6. Now the next ground for our consideration is with regard to bringing to tax the long term capital gains by applying the provisions of Sec.2(47)(v) of the Act. 6.1 The AO brought to tax the long term capital gains aggregating to Rs. 39,77,60,547/- on the application of sec.2(47)(v) read with sec.45 of the Act, are that the assessee objected to the addition before the AO by stating that Sumeru Soft Pvt. Ltd. has purchased an extent of 31 acres 78 ¾ cents approximately agricultural punja land in village karungullipallam, Alathur Panchayat Board Limits,Thiruporu Panchayat Union, Taluk Chingleput, Kanchipuram District on 9.6.2001. During the assessment year,Sumeru Soft Pvt. Ltd. entered into a joint venture agreement with Parsvanath developers limited for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be sold back by the owners to the developer and the cost of the above shall be paid by the developer by the way of adjustment out of the interest free deposit of _ 7.02 crores. The AO observed that the owners have allowed the developer to enter upon the project of the land for the purpose of construction and have allowed the developer to pen a site office thereon and the owners agreed that the developer may in their own can raise any loan for development and construction of the project from any Banks / Financial institutions and for that purpose the developer shall deposit the title deed of the project land with banks / financial institutions. 6.3 According to the AO, as per the above agreement the assessee company, M/s. Sumeru Soft P. Ltd. executed General Power of Attorney in favour of the developer, M/s. Parsvanath Developers on 12.9.2006 and the same was registered before the Sub-Registrar, Mylapore vide DOC. No. 1515/2006 dated 12.9.2006 has given the rights to the developer as mentioned in the joint venture agreement. The AO observed that the transfer in terms of sec.2(47)(v) of the Act, took place on the date of execution of the joint venture agreement dated 10.9.2006. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the asst. year under consideration based on the presumption of giving possession to the developer upon entering into the said JV is not correct on the facts and in the circumstances of the case. The AO had not considered the subsequent events so as to presume the deemed transfer for the purpose of taxing LTCG in relation thereto. In the letter dated 16.3.2015, the assessee had brought to the notice of the AO that the proposed project of building residential and commercial space had never took off and hence, the taxation of capital gains on the presumption of deemed transfer of 73% of undivided share of land in favour of the developer is consequently not correct. The subsequent event of the non development of the land in question is very relevant factor for consideration in the reopened assessment under consideration and the reopening of the assessment took place from the issuance of a reopening notice on the assessee on 26.3.2014 inasmuch as even after the lapse of nearly eight years, the proposed project never implemented. Hence, the presumption of deemed transfer in such circumstances would fall to the ground. The taxation of deemed transfer as per sec.2(47)(v) of the Act cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r and consequential computation of LTCG. The AO apparently placed reliance on the failure of the assessee in getting a confirmation letter from the developer to justify his computation of LTCG and because of the failed project, the difficulty in obtaining the confirmation letter under the complex situation was not appreciated by the AO in the impugned order. The assessee argued before the Learned Commissioner of Income Tax(A) that there was no prohibition for the AO to cross verify with the developer independently in order to ascertain the correctness of the assessee's submissions. The failure of the AO in conducting cross verification with the developer independently would vitiate his decision completely. Therefore, the presumption of transfer u/s.2(47)(v) of the Act is not correct and is liable to be interfered with in cancelling the reassessment under consideration in all respects. 7. The assessee submitted before the Learned Commissioner of Income Tax(A) that the taxation of LTCG especially in the context of the legal presumption of deemed transfer cannot be considered as automatic on the entering into the related agreements as well as putting the other party/developer into po....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of transfer by the AO in the impugned order. Moreover, the computation of LTCG which is extracted fully as part of this notes of argument is wholly inaccurate and not in tune with the facts of the case. This argument is canvassed without prejudiced to the main arguments advanced in the preceding paragraphs on the non applicability of sec.2(47)(v) of the Act. The AO equated the security deposit received to the extent of _7.02 crores to the value of constructed area of 4.5% of the total entitlement of the constructed area to the assessee at 27% and accordingly the AO proceeded to quantify the value of the 27% of the constructed area at _ 42,15,24,000/- for adopting such sum as sale consideration for the transfer of 73% of UDS in land in favour of the developer. The said approach of the AO was based on clause 12.4 of the joint venture agreement which is extracted herein after for immediate reference : "12.4 Out of the 27% areas earmarked for the Owners, 4.5% of the areas of the project shall be sold back by the Owners to the Developers or their nominees together with proportionate undivided share of land @ _ 1000/- (Rupees One thousand per sq.ft.) Such 4.5% of area shall be out of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alue so as to quantify the value / sale consideration of the UDS in land surrendered in favour of the developer under the JV agreement which method is also legally permissible as per sec.50C of the Act. The assessee also pleaded before the CIT(A) that alternatively appropriate directions may be given to the AO to quantify/revise the LTCG for the purpose of taxation in accordance with sec.50C of the Act. The said stand of the assessee is alternative to the main stand of the non applicability of sec.2(47)(v) of the Act. 7.2 The CIT(Appeals) observed that the capital gains are taxable in the year of possession of property and not transfer of title under the IT Act. Further, the CIT(Appeals) observed that the possession is handed over to M/s. Parsvnath Developers by the assessee in the year under consideration. The Tribunal, Mumbai Bench in the case of Gripwell Industries Ltd. v. ITO [284 ITR (AT) 188] has held that where there is an agreement of sale between the assessee and the vendee and the physical possession of the factory along with factory land, building and other assets is actually given in one financial year whereas the legal title to the property is transferred in the next ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....registered sale deed, however, certain rights can exist in an immovable property pursuant to the provisions of sec.53A of the TP Act, 1882, sec.202 of the Contract Act, 1872. There also takes place devolution of interest after the death of the testator in terms of a Will. 7.5 The CIT(Appeals) observed that in case of joint development agreement, question arises when the incident of capital gains tax arises. It purely depends upon the terms of development agreement. When the agreement is of such a nature that possession is given in part performance of a contest, the liability of capital gains tax will arise on the handing over of such possession. It is not the case of the assessee that only a license is given to the developer and possession shall be given on completion of project. It is not necessary that entire sale proceeds be received by the owner to attract the provision of sec.2(47)(v) of the Act. Therefore, according to the CIT(Appeals), the action of the AO in holding that the property has been transferred and the transaction would attract capital gains u/s.2(47)(v) of the Act is justified. While computing the capital gains, the AO has adopted sale consideration, being _42,1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sfer of the capital asset. It shall not be out of context, at this juncture, to mention an observation of the hon'ble Authority for Advance Rulings in the case of Jasbir Singh Sarkaria, In re [2007] 294 ITR 196 (AAR), that the expression used in section 45 is "arising", which cannot be equated with the expression "received" or even with the expression "accrued" as being used in the statute. The point which deserves notice is that the amount or the consideration settled may not be fully received or may not technically accrue but if it arises from the agreement in question, then the deeming provisions shall come into operation. Another point is also equally noticeable that by the presence of the deeming provision, the income on account of accrual of the capital gain should be charged to tax in the same previous year in which the transfer was effected or deemed to have taken place. Due to the presence of this statutory fiction, the actual year in which the entire sale consideration is received, is beside the point but what needs to be judged is the point of time at which the transfer took place either by handing over of the possession or by allowing the entry into the premises or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....table conduct of any person has no sanction in the eye of law. 8.5 In the light of the ingredients of this section, which has been argued from both the sides, now we proceed to examine the factual matrix of the case in hand, hereinbelow : (a) Starting words of section 53A are "where any person contracts" which means just the existence of a contract. The assessee is the "person" who has entered into a contract with the developer vide agreement dated 10th September, 2006. (b) This section says "to transfer", which means the said contract is in respect of a transfer and not for any other purpose. The term "transfer" is to be read along with the section 45 and section 2(47)(v) of the Income-tax Act. It is pertinent to clarify that one must not forget to identify the issue of capital gain with the term "transfer" as defined in section 54 of the Transfer of Property Act. At the cost of elaboration, we may like to add that in the past there was a long line of pronouncements; while deciding Income-tax cases, that unless and until a sale deed is executed and that too it is regis tered, transfer cannot be said to have been effected. The consequence of the said catena of decisions was that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reement. (e) The other factor which governs the happening of transfer is the handing over of possession. This section says "and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession continues in possession in part performance of the contract and has done some act in furtherance of the contract". Retention of possession is one kind of the facet of part performance of the contract. The agreement in question can be said to be a distinct transaction that has given rise to the event of allowing the contractor to enter into the property. What is contemplated by section 2(47)(v) is a transaction which has direct and immediate bearing on allowing the possession to be taken in part performance. It is at that point of time that the deemed transfer takes place. According to us the possession as contemplated in clause (v) need not necessarily be sole and exclusive possession, so long as the transferee is enabled to exercise general control over the property and to make use of it for the intended purpose. The mere fact that the assessee owner has also the right to enter the property to overs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cts of this case thus suggest that the developer had never intended to walk-out of the project. (g) From the development agreement, it is more than clear that it was an agreement for construction of residential/commercial flats on the property owned by the assessee. In lieu of the right given to the developer thereunder, the assessee was to receive 27 per cent. of the constructed area of all the floors. Further, even the vacant and peaceful possession of the property had been delivered to the assessee vide clause No.18 to 18.4 of this JV Agreement. Under the circumstances, there was indeed an exchange of property which amounted to a transfer within the meaning of section 2(47)(v) of the Act and the gain resulting from such transfer was indeed taxable in the year in which the development agreement giving vacant and peaceful possession of the property to the developer was entered into by the assessee, as held by the hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia v. CIT [2003] 260 ITR 491 (Bom) and in the several decisions of the jurisdictional Income-tax Appellate Tribunal, Hyderabad, including that in the case of Dr. Maya Shenoy, Secunderabad in 124 TTJ 6....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inabove. The transferee was undisputedly willing to perform its part of the contract, in this circumstance we have to hold that there is transfer under section 2(47)(v) of the Act in A.Y 2007-08. Thus, the possession and control of the property is already vested with the transferee and the impugned development agreement has not been duly cancelled and it is still in operation, it has to be decided that there is a transfer under section 2(47)(v) of the Act in F.Y.2006-07 relevant to ay 2007-08. 9. We have to see the real intention of the parties. As per the well known cannon of construction of document, the intention generally prevails over the word used and that such a construction placed on the word in a deed as is most agreeable to the intention of the parties. There are grounds appearing from the face of the instrument affording proof of the real intention of the parties, then that intention would prevail against the obvious and ordinary meaning of the words used. Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of section 45 of the Act on fulfilment of conditions laid down in section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e undivided share of land at Rs. 1,000/- per sq. feet and the consideration amount for the said 4.5% of the area of the assessee shall be paid by the Developer by way of adjustment out of the interest free deposit paid to the assessee by developer at Rs. 7,02,54,000/- as per clause No.10.1 of JVA. Thus, it does not mean that the cost of 4.5% of the area of the project was valued at Rs. 7,02,54,000/-. On this issue, the CIT(Appeals) observed that the value of share of consideration of 27% of saleable or super-built area including parking places of the project allotted to the assessee on transfer of undivided share of 73% of land surrendered in favour of developer to be valued on the basis of guideline value of said undivided share of land allotted to the developer. In our considered opinion, this is also not appropriate method to determine the consideration receivable by the assessee on account of JVA dated 10.09.2006. In our considered opinion, cost of construction of built-up area of 27% of saleable or super-built area including parking places of the project allotted to the assessee to be ascertained by the Assessing Officer after examining the relevant record of cost of construct....